Just last week, officials from JP Morgan Chase admitted in testimony to withholding for months financial statements pertaining to the subsequent $6 billion in losses incurred by the now-infamous rogue trader dubbed the “London Whale.”

These are but recent examples of the inherent flaws to our current banking system. Even more striking, they could signal a return to, or rather a failure to depart from, the practices that catalyzed the global financial crisis of 2008-09.

Financial institutions in the U.S. are highly concentrated. The 12 largest financial institutions hold about 70 percent of the assets in the nation’s banking system.

Integrating the balance sheets of an oligopoly-like clustering of firms increases the prevalence of moral hazard whereby one party, knowing they will not bear the burden if bets go bad, takes on more additional risks than they otherwise would.

In financial markets, this has translated into banks borrowing excessive amounts of capital, which has landed them in precarious financial situations. Think of the homeowner who buys a house with no down payment being highly susceptible to adverse market conditions.

Indeed, much of the increased borrowing stems from the access to funding at nearly negligible costs.

It is true that the largest U.S. banks receive preferential treatment in credit markets.

One reason big banks access funds so cheaply is because borrowers demand less in return presuming that the government (taxpayers) will provide relief if needed. Banks currently are allowed to borrow up to 25 times their equity under U.S. rules.

This incentive structure merely encourages banks to grow without bound.

Although we are not Ireland, Iceland and what now includes Cyprus, it is clear what dangers are posed when a nation’s financial sector is disproportionately large relative to the underlying economy.

The economic resources necessary to buoy a highly integrated banking system simply are not sustainable.

Current financial industry profits make up roughly 30 percent of total U.S. business profits, a greater share than in 2006 through 2008. This number hovered around 10 to 15 percent from 1950 through 1980.

One source of profits, for instance, comes from banks borrowing from the Federal Reserve’s discount window at rock-bottom rates and turning around and purchasing billions of dollars of government treasuries, which yield a greater risk-free return.

The amount of exposure and capital mobility in the banking system in the U.S. and internationally is akin to an oil tanker with no compartmentalization of the oil in the hull.

As the tanker navigates the rough seas, oil effortlessly unbalances the tanker, swaying it this way and that.

Without the proper “dividers” in financial markets, capital accumulates in a few mega banks and in certain classes of assets (think mortgage-backed securities).

In addition to tighter capital controls and a stronger regulatory framework, a greater integrity of financial products is clearly needed to mitigate the exposure of systemic risk across institutions.

The recent LIBOR scandal comes to mind. This was the spirit of the original Dodd-Frank Act.

However, great delays in implementation and incessant watering down of the provisions have made it somewhat inefficacious.

There are enormous risks of failure of systemic institutions because of large external effects. Some progress is being made on this front.

Officials from the financial regulation and banking oversight committee at the Fed have put forth a proposal that would nearly cut in half the size of the consumer trading units, effectively shrinking banks like JP Morgan Chase and Bank of America.

What’s more, path-breaking accounts like “The Bankers’ New Clothes” advance ideas on increasing bank equity through retained earnings rather than through debt.

We haven’t done enough to gauge properly the underlying viability of the nation’s largest banks.

A better model for success might just make the old and boring business of making sound loans a requisite for existence.

The U.S. has yet to outline a liquidation plan for big banks that is orderly and manageable.

When will the behavior of extracting rents from the economy and its citizens by major financial institutions come to a halt?

Haven’t we seen before how this movie ends?

Dr. Nicholas J. Mangee is assistant professor of economics at Armstrong Atlantic State University and can be reached at nicholas.mangee@armstrong.edu.